Revenue Slips Again at Yahoo, but Display Ads Show Growing Strength

Search Revenue Stalls as Partnership With Microsoft Finds Footing

NEW YORK (AdAge.com) -- Online display ads are coming back, but not enough to deliver Yahoo from another down quarter, in part due to a decrease in search revenue from its search partnership with Microsoft.

In addition, Yahoo announced it let go another 140 employees, about 1% of its total workforce. This comes just two months after it reduced its ranks by 600 employees, but CEO Carol Bartz said Yahoo plans to step up hiring in 2011 as newly appointed executives such as Americas chief Ross Levinsohn and sales head Wayne Powers hire based on their priorities. "We are going to exit the year with more people than we started, with flat costs," she said.

The portal giant took in less money in the most recent quarter, earning $1.21 billion, a 4.2% drop from $1.26 billion in revenue the prior year, though Yahoo said that was largely due to an expected 18% decline in search ad revenue from the search partnership with Microsoft, completed in October. Display advertising was a bright spot, up 16%, and continuing an upward trend over the past year.

The combined Yahoo-Bing was set up to compete with Google, but the joint effort hasn't yet made an impact, dropping its share of the search advertising market to 17.4% from 23% in the same period last year, when the two were separate. Google, meanwhile, increased its slice of the pie to 82.6%, up from 77% a year before. Google took in a staggering $6.37 billion in the same period, a striking gain even though the search titan actually has fewer users that Yahoo. For the last two months of the year, Yahoo had the most readers of any web property, according to ComScore, at 181 million people, while Google attracted 179 million viewers.

A bright spot for Yahoo is a strong increase in display advertising, which was up 16% to $567 million for the quarter, up from $490 million a year ago, but the company saw its share of the overall market dwindle to 16.2% in 2010, down from its 2009 share of 16.5%, according to eMarketer.

Facebook, in particular, has emerged as a threat if not in ad sales then in the quest for user attention. On average people spent 59% more time on Facebook than on Yahoo toward the end of last year, according to ComScore, a statistic that clearly lured more advertisers to Facebook, as it now accounts for almost a quarter of all online advertising impressions, signaling a significant change in how people access the internet altogether.

Still, even as Google and Facebook gain ground, Yahoo controls more online display dollars than any other company. Its dominance is most significant among the biggest brands and agencies, those, as Ms. Bartz said, that are driving the shift in spending from offline to online media.

Yahoo was once the front porch of the internet, and the institutional tendency is to proclaim that it be all things to all people. But Ms. Bartz put a finer point on Yahoo's strategy than a year ago. In short, Yahoo "delivers great content ... the aggregation, creation and curation of content. It's what we do; what we're best at."